Midwest Window Systems, Inc. v. Amcor Industries, Inc.

• Citation: 630 F.2d 535
• Decision Date: 19 September 1980
• Docket Number: No. 80-1067,80-1067
• Parties: MIDWEST WINDOW SYSTEMS, INC., Plaintiff-Appellant, v. AMCOR INDUSTRIES, INC., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 535

630 F.2d 535

MIDWEST WINDOW SYSTEMS, INC., Plaintiff-Appellant, v. AMCOR INDUSTRIES, INC., Defendant-Appellee.

No. 80-1067.

United States Court of Appeals Seventh Circuit.

Argued May 29, 1980.

Decided Sept. 19, 1980.

John Dale Stobbs, Alton, Ill., for plaintiff-appellant.

William G. Ohlhausen, St. Louis, Mo., for defendant-appellee.

Before CASTLE, Senior Circuit Judge, and SPRECHER and WOOD, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge. ¹

The issue is whether or not a contractual obligation to arbitrate a dispute arising between two parties to a distributorship agreement was waived. We hold that waiver occurred and reverse.

Midwest Window Systems, Inc. (Midwest) is an Illinois corporation engaged in the business of selling and installing window systems. Midwest, pursuant to the distributorship agreement which contained the arbitration agreement, purchased its window products from Amcor Industries, Inc., a Pennsylvania corporation (Amcor). The distributorship agreement provided that any dispute arising concerning the interpretation or application of any of the provisions of the agreement should be submitted to arbitration.

A dispute arose in 1979 which Midwest alleges was because of defects in Amcor's product, incorrect quantity deliveries, deliveries to wrong locations, incorrect freight charges, and other difficulties with pending orders and accounts. Amcor and Midwest thereafter met and reached agreement. Amcor agreed to complete all pending orders by July 31, 1979. On the basis of that assurance, Midwest alleges it gave Amcor two promissory judgment notes each in the amount of $45,645.36, due respectively on July 31, 1979, the date the deliveries were to be completed by Amcor, and August 31, 1979. Amcor failed to make the deliveries, Midwest alleges, but even so, relying on assurances from Amcor, Midwest proceeded to pay its first note. However, the failure of Amcor to deliver continued, it is claimed, causing Midwest difficulties with its own contracts for installation of Amcor's product. Midwest then advised Amcor that it would make no further payments on the second note until their continuing dispute could be resolved. Also at issue were back charges, credits, and offsets which Midwest claimed against Amcor totaling an amount almost equal to the second note.

Amcor responded on September 11, 1979, by taking judgment in the Western District of Pennsylvania on the first note in part and the second note in full together with interest and attorneys' fees, the latter being in the amount of $13,663.60. The total judgment was $61,875.76.

In its own defense, Midwest promptly did two things. First, on September 21, 1979, Midwest filed a complaint against Amcor in the Southern District of Illinois. The complaint alleged breach of contract for delivery failures, breach of warranties, and fraud in connection with the notes. Thereafter Amcor moved to stay that proceeding and to compel arbitration.

Second, within about three days after filing its own suit in Illinois, Midwest moved in the Pennsylvania court to open the judgment on the notes on the basis of the allegations similar to those contained in its Illinois complaint. That motion was allowed and Midwest filed its answer. The Pennsylvania court transferred the case to the Southern District of Illinois for consolidation with the suit of Midwest against Amcor. On November 30, 1979, the Illinois court allowed Amcor's motion and directed arbitration in the suit filed by Midwest in Illinois. This appeal followed.

We recognize a strong federal policy favoring arbitration and that waiver of arbitration is not lightly to be inferred. Amcor, however, disregarding the waiver provision, initially endeavored to secure an advantage over Midwest by taking judgment on the notes in Pennsylvania. After the strong counterattack by Midwest, Amcor, however, moved successfully for arbitration in the Illinois suit filed by Midwest against it. ²

Amcor recognizes that arbitration is waivable, Burton-Dixie Corp. v. Timothy McCarthy Construction Co., Inc., 436 F.2d 405 (5th Cir. 1971), but argues that the proceeding it filed in Pennsylvania to reduce the notes to judgment did not actually submit to the court the outstanding disputes between the parties. Confessing judgment on a note, it explains, is only a summary proceeding without judicial determination and therefore does not constitute a waiver of its right of arbitration. Up to that point, Amcor is correct, but a confession proceeding commonly triggers a full hearing on the underlying merits so that a full judicial determination is necessary and unavoidable. Amcor further attempts to minimize its original avoidance of arbitration by arguing that it "simply attempted to enforce a confession of judgment in an amount on which the parties had...